swaption - Investment & Finance Definition

Common
slang for swap options. A swaption
is an over-the-counter option on an interest
rate swap, which allows one party to swap an interest-paying investment
at a certain price and time in the future with another party. Just as in the
case of ordinary options, this contract gives the holder the right, but not the
obligation, to enter into an interest rate or currency swap on prearranged
terms.